Friday, October 02, 2009

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Federal Trade Commission (FTC) attorneys failed to prove that the operator of a dietary supplement business participated in the creation or dissemination of allegedly deceptive and false advertisements that appeared on the Internet for an herbal remedy, according to an administrative law judge presiding over the case. Thus, the ALJ dismissed the complaint without reaching the issue of whether the advertisements in were, in fact, false or misleading in violation of the FTC Act.

The agency had alleged that RAAX11, which purportedly contains agaricus blazei murill mushroom extract and chysobalanus icaco extract, was falsely marketed as a treatment or cure for cancer. An administrative complaint was issued against Gemtronics, Inc. and its owner Bill Isely on September 16, 2008. The ALJ’s initial decision dismissing the case was issued on September 16, 2009, and released today.

According to the ALJ’s decision, Isely, after being diagnosed with prostate cancer, had ordered the agaricus mushroom product for himself from the supplement manufacturer, Takesun do Brasil, on the website—www.agaricus.net. The challenged claims appeared on that website.

Information about Isely’s efforts to battle cancer using the supplement appeared the www.agaricus.net website. However, Isely contended that he had no control over the website or the claims that appeared on it. Isely eventually became a wholesale purchaser of RAAX11 and began offering RAAX11 for sale on his own website.

The threshold determination under Section 12(a) of the FTC Act was whether Isely and his company “disseminated” or “caused to be disseminated” the challenged advertisements on the www.agaricus.net website, as alleged in the Complaint, according to the ALJ.

The ALJ decided that neither Isely nor his company was responsible for the www.agaricus.net website. The FTC failed to demonstrate that Isely sold RAAX11 through the www.agaricus.net website or that Isely and his company were the exclusive source for RAAX11 in the United States. In addition, it was not established that Isely had full knowledge of the challenged advertisements or that Isely had the ability to control the www.agaricus.net website.

Liability for dissemination or causing dissemination, of advertisements requires proof of the respondent's participation in the creation or dissemination of the advertisements, the ALJ explained. Moreover, neither Gemtronics nor Isely was an officer, director, shareholder, or other principal of Takesun do Brasil or the www.agaricus.net website. Therefore, standards for liability arising from purported “ability to control” or “knowledge” did not apply to determine the respondents’ liability for the challenged advertisements for RAAXll on the www.agaricus.net website.

Opportunity for Appeal

Complaint counsel has 30 days to appeal the decision to the full Commission. The ALJ’s initial decision is subject to review by the Commission on its own motion or at the request of any party. The initial decision will become the final decision of the Commission 30 days after it is served on the parties, unless either a party files a timely notice of appeal, or the Commission places the case on its own docket for review.

The text of the administrative complaint is available at CCH Trade Regulation Reporter¶16,191.

Details of the ALJ’s initial decision, In the Matter of Gemtronics, Inc. and William H. Isely, FTC Dkt. 9330, will appear in CCH Trade Regulation Reporter. The initial decision appears here on the FTC website.